Philip Morris clinches Swedish Match after smoking out opposition

Philip Morris takeover bid lights up Swedish Match shares.Reuters

Marlboro maker Philip Morris International (PMI) (PM.N) is going ahead with its $16 billion takeover of Swedish Match (SWMA.ST) despite securing slightly less than the 90% stake it wanted, as the U.S. group presses on with its shift away from cigarettes.

PMI said on Monday it had secured 82.59% of the Swedish company, short of the 90% level at which it can start a compulsory purchase of remaining shares.

The U.S. group, which had said previously it could drop its bid if it did not reach that threshold, said it believed that level could ultimately be achieved, and that Swedish Match's 10 largest shareholders had accepted its bid.

That would mean activist investor Elliott Management, which had built a 10.5% stake in Swedish Match and opposed PMI's offer, had tendered its shares. Elliott declined to comment.

"Our intention is still to take the company entirely private, so it is better for the (Swedish Match) shareholders if they tender their shares," PMI Chief Executive Jacek Olczak told Reuters.

PMI said it had extended its offer, now unconditional, until Nov. 25 in the hope of further raising its stake, and Olczak said that could lead some index funds that have not already tendered their shares to do so, in addition to other holdouts.

PMI made a 106 crowns per share offer to buy Swedish Match in May, and then raised it to 116 crowns per share in October after some investors said the initial price was too low.

Buying Swedish Match, with its popular wet snuff "snus" products and tobacco-free nicotine "ZYN" pouches, will aid PMI in its stated ambition to move away from health-harming cigarettes and eventually become a smoke-free company.

The deal will also help pave the way for PMI into the U.S. market, where Swedish Match has grown its business rapidly and where PMI is currently absent.

"I see strong industrial logic in the combination and see Swedish Match being able to do things with PMI in both scenarios," Swedish Match CEO Lars Dahlgren said, referring to whether the company is delisted or remains listed with PMI as its majority shareholder.

Asked about his future with the company, Dahlgren, who has been its CEO since 2008, said it remained to be seen since there was no formal agreement in place, but added he "enjoyed working at Swedish Match".

Jefferies analysts said in a note to clients that to secure Elliott's approval, PMI could have potentially promised a special dividend or a seat on its board to the investor.

PMI and Elliott did not immediately respond to requests for comment on this.

According to Reuters calculations, Elliott stands to make a profit of over $100 million, or more than a 6.4% return, on its investment.

John Hempton, co-founder of Sydney-based Bronte Capital, has also been against the deal, but said on Sunday he would tender his shares if Elliott had done the same.